Harvesting machinery can be seen behind a wheat crop in a paddock located on the outskirts of the South Australian town of Jamestown, in Australia, December 1, 2017. REUTERS/David Gray
CHICAGO - 13 December 2017: Falling prices have lured a big buyer to U.S.-grown, low-protein wheat, raising the prospect for farmers of more exports and the hope that the market for low-protein wheat may have reached its nadir.
U.S. wheat prices have tumbled 60 percent since reaching a four-year high in 2012 as large harvests around the world have reduced export demand.
Global wheat inventories are at record-high levels, due in part to heavy production from Russia.
For the past two years, U.S. growers have also struggled with the quality of domestic harvests, putting high-protein hard wheat in short supply. The shortage spans the $23 billion U.S. bread market, hurting domestic bakers and millers who prize high-protein wheat, and can affect export sales.
Algeria, the world’s third-largest wheat importer, made its biggest U.S. wheat purchase in nine months on Tuesday. Separately, a listing of prices that Egypt, the top importer, paid for Russian and Romanian wheat showed that U.S. prices are now low enough to compete for sales there.
“The fact that we sold wheat to Algeria got my attention,” said Jim Gerlach, president of broker A/C Trading in Indiana. “It certainly doesn’t hurt and underscores that we’re becoming competitive.”
Algeria is known as one of the world’s low-cost buyers and imports most of its wheat from France, taking advantage of its proximity to save on shipping costs.
The north African nation’s purchase of 120,000 metric tons of U.S. hard red winter (HRW) wheat, used to make bread, showed that U.S. prices had dropped low enough to attract its demand, said Don Roose, president of Iowa broker U.S. Commodities.
“Algeria I already consider the Kmart buyer,” Roose said about its focus on price.
Algeria is buying U.S. HRW wheat with relatively low protein levels - 11 percent or below - because it fits the type of flour the country needs to produce its preferred baguette-style bread, according to U.S. Wheat Associates, a trade group funded in part by the U.S. Department of Agriculture (USDA).
The free-on-board (FOB) cost for low-protein U.S. HRW wheat is as much as $6 per ton less than French futures prices for January delivery, the group said.
“They’re taking advantage of the cost,” Steve Mercer, a spokesman for the U.S. group, said about Algeria.
“It’s not good for farmers, but it’s certainly good for buyers like Algeria that could use that lower protein wheat.”
On Tuesday, the USDA cut its forecast for U.S. wheat exports because of increased competition from Canada and raised its forecast for global supplies. HRW wheat and soft red winter wheat futures both slipped at the Chicago Board of Trade.
For soft red winter wheat, used in cookies and crackers, U.S. prices have dropped below levels Egypt paid for Russian and Romanian wheat on Tuesday, said Roy Huckabay, analyst for Linn & Associates in Chicago.
Egypt bought 295,000 tonnes of Russian and Romanian wheat in a snap tender for prices ranging from $207.89 cost and freight (C&F) to $209.15 C&F.
“U.S. soft wheat, at 70 cents over (futures) at the Gulf, lands about $2 cheaper than what traded,” Huckabay said.
“Even though we’re not going to sell any wheat to Egypt, that tells you that U.S. wheat prices have gotten down to where they have value.”
Egypt last bought U.S. wheat in May, its first purchase in more than two years, and is still thought to favor sources in the Black Sea region. (Additional reporting by Karl Plume and Julie Ingwersen in Chicago; Editing by Simon Webb and James Dalgleish)